Market bounce at crucial point

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The latest stock market rally is at a crossroads as bear market bounces go, at least those seen in 2008-2009. They usually last on average 30 trading days.

Today is the 30th trading day since the UK’s FTSE 100 and the pan-European FTSEurofirst 300 hit their lows on March 9. The FTSE 100 has rallied some 15 percent since then, while the FTSEurofirst 300 has surged 22 percent.

Bulls and bears have been at it for sometimes over whether this latest rally is the “real deal” or yet another bear market rally. Pessimists point to potential shocks in corporate earnings in the latest reporting seasons in the U.S. and Europe, which will give investors a reality check, and the bank stress tests in the United States that are expected to be released on May 4.

Optimists, however, are seizing the not-so-bad economic data from the U.S. to China as well as their belief that equity markets hit the low points 2 to 3 quarters before earnings reach the trough. They argue the market is more or less back on its feet.

Also, the VIX, Wall Street’s fear gauge, has fallen 25 percent since the start of this bounce in equities.

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I am head of the European stock markets team based in London. Before that, I was with Reuters Hong Kong for more than 10 years, covering politics, banking, macro-economy and Asian G-3 currency bonds and credit.